Winter is coming, and state leaders say Texas won’t experience blackouts.
Texas Gov. Greg Abbott, ERCOT CEO Brad Jones and Public Utility Commission chairman Peter Lake have each said some variation of “The lights will stay on.”
The Public Utility Commission is already enforcing new regulations. Power plants had until the beginning of this month to file winter preparedness reports. Thirteen failed to do so, and the PUC will seek $7.5 million in fines.
Texas Public Radio’s Dominic Anthony Walsh sat down with PUC chair Peter Lake a day before the commission passed “phase one” of an ongoing market redesign.
This interview has been edited for clarity and length.
Dominic Anthony Walsh: Explain the purpose of these winter preparedness reports, and how seriously is the PUC taking the violations? Do you expect those fines to stick?
Peter Lake: These winterization requirements are in place to ensure that our power grid is resilient and reliable for this winter. This is the first time Texas has ever had these requirements in place. They meet and exceed the federal standards for winterization. So, we are absolutely confident that our infrastructure and our power plants are ready for this winter. How serious are the fines? $7.5 million serious. We'll go through the regular appeals process. If these companies are planning on appealing them, we'll go through that procedural component then. But these are absolutely serious fines. The PUC and the State of Texas are taking this very seriously. And that's just the beginning. We've got even more weather and winterization inspections coming up.
Walsh: Earlier this year, you announced a redesign of the Texas electricity market. You called the old design a “crisis-based model,” and you said it would be completely flipped on its head. What exactly was wrong with the model Texas had before, and what are the main changes that have already been made?
Lake: The crisis-based business model was built on reducing reserves of power supply to increase prices and in order to drive revenues to our generators. I don't think anybody ever sat down and planned out to have a crisis-based business model. Over two decades, that's the way it evolved. Of course, bringing new resources into the grid — like renewables, like wind and solar — introduced a whole other dynamic, which was a challenge. And that is part of what we're dealing with with the new market design. We've made phase one changes, which are dramatic changes to bring more reserves on sooner, to provide more economic support for reliable dispatchable power. And we're also working on a second phase of market redesign that will provide a backstop, and also incentivize and provide economic resources for reliable dispatchable power of any form. We're going to provide ERCOT generators with the incentive to not only just show up when the wind’s blowing or the sun shining, but to make sure their generators are reliable and dispatchable so that when Texas needs to turn the lights on, we can turn the lights on.
Dominic: One of the mechanisms to accomplish what you just described that you've proposed is what's known as a “load-serving entity obligation.” It's also one of the more controversial proposals, I think, in the market redesign. AARP of Texas pushed back on it. They represent generally low-income, retired people. The Texas Association of Manufacturers has pushed back on it — a big industrial group. What exactly is this mechanism supposed to accomplish, and why do you think there is so much pushback?
Lake: This mechanism, if implemented tomorrow, will for the first time ever require the retail companies who collect monthly checks from Texas households to provide power — will, for the first time ever, require them to actually go provide the power that they've promised their customers. That's never happened before. And it would require them to do so in a dispatchable, reliable power. Right now, they have no obligation to ensure any measure of reliability for the households they take money from each month. That would be an extraordinary step forward. That would enhance reliability for all of Texas, and also, for the first time ever, provide customers with what these companies have promised them. So there are tremendous benefits. I know the various groups you mentioned are worried about cost. But in any scenario — whether it’s apples, widgets, barrels of oil, cups of lemonade — if you don't have enough of something, you have to go buy more. We know we don't have enough long-term dispatchable power in Texas right now. We know we're going to need to build that for our future, so we're gonna have to go buy some more. So sure, cost may rise a bit in the near term, but if we continue to focus on designing the market so it's a properly functioning market. The cure for high prices is more high prices. Those higher prices bring in more supply, more dispatchable power — which is exactly what we want. As we have more supply, the price drops because the supply starts outpacing the demand, which is exactly what we need.
Walsh: So you mentioned dispatchability, in terms of the resource matrix, I've heard you and the other Commissioners talk a lot about “resource neutrality” when it comes to this. Gov. Abbott has mentioned that he wants to rely on the legacy fossil fuel. He mentioned coal and gas — in a letter to the commission, he mentioned that he wants these things to be prioritized. How do you define dispatchability?
Lake: I think my definition is consistent with the governor's. When you flip the switch, it comes on. It's pretty straightforward. And when you hear the commission talk about “technology-agnostic,” that doesn't mean capability-agnostic. Technology-agnostic means I don't particularly care what's behind the switch, as long as it provides power when I turn it on. It could be a battery attached to a windmill, it could be hydro pumps associated with a solar farm, it could be hydrogen-generated, it could be zero-emission, it could be nuclear-generated. We're focused on the capabilities to deliver reliable power. And we're gonna let the marketplace figure out which technologies bring that to bear in the most cost-efficient way for our customers.
Walsh: Gotcha. So the other day, I got a text from CPS energy, the utility in San Antonio, where I live. CPS expects to raise rates. And San Antonio is definitely not the only place where rates are going up in Texas. This, I think, is one of the big frustrations that a lot of Texans are feeling. A handful of companies made billions of dollars during the storm, and those costs will be passed on to the general public. And you know, AARP and others have pointed out that this is a pretty big problem in a state where a lot of low-income residents already have high energy burdens. Do you feel confident that, in a crisis, with some of the changes that have been made and some of the planned changes, that this won't happen again — this kind of massive transfer of capital from the public to a few private corporations?
Lake: In terms of our power grid being reliable and resilient so we don't have to incur those extraordinary costs again and those extraordinary costs aren't passed on to our households and small businesses, absolutely. We've cut the highest price possible in ERCOT almost in half. In a matter of months, we've built a new margin of safety — every day we had it going in the summer. We've got it going into the winter, which is a huge increase in the reserves we have available if conditions get tight. And most importantly, we've moved the ERCOT operations away from that crisis-based business model and more towards an abundance of caution model, as opposed to waiting for trouble and waiting for prices to get high like in the past. Now, ERCOT is taking a completely 180-degree approach. And they know that if there's trouble on the horizon of even the slightest bit, they bring more reserves on. They turn more generators on sooner than they ever have before. Each of these on their own is a remarkable reform. All of these in combination are reforms of such scale that I have to think that ERCOT has brought more meaningful change in a shorter amount of time than any other good in the U.S.
Walsh: So we've been talking about the supply side, and that's what the PUC is really focused on — looking at power generators, how to keep them running, so that power is being supplied. The other side of the market is demand: how much people actually need to use at any given moment. One criticism I've heard of the market redesign process is that there hasn't been enough attention given to energy efficiency programs, demand response programs — things that would reduce the amount of load that the grid has to serve. Do you think the agency needs to give more attention to the demand side of the grid and ramping up energy efficiency and demand response?
Lake: We have run a tremendously transparent process that included robust comments. In addition to that, we had a specific work session this summer dedicated to nothing but demand response, which included the commission listening to stakeholders, industry experts, and the leading experts on demand response. So it has been an integral part of this conversation. And going forward, part of that technology-agnostic approach… includes demand response. We want to treat demand response just like a gas plant, just like a battery, just like a hydrogen generator, just like a hydro generator — as long as the capabilities are equal and they fit into the right category, which would not only incorporate demand response, but for the first time formalize the value and requirements of demand response. So right now, demand response is in a few narrow programs officially in ERCOT. There's a lot of it in the real time market that we never see that's up to each individual company. But by quantifying and providing economic value to the services those companies provide, we're going to advance demand response — both economics and technical capabilities — more than we ever have before.
Walsh: Gotcha. A related criticism I've heard on the process of the market redesign relates to public input. And this is always a difficulty when it comes to government bureaucracies. Working people don't necessarily have the time to figure out how to make their voice heard. That said, how is the agency making sure that working Texans have a strong voice in the market redesign?
Lake: We have, as I said, run an incredibly transparent process. For the first time in at least a decade, we have run open work sessions where all the commissioners are sitting and listening to industry experts, stakeholders — anybody who has value to add, we've been listening to them. The entire general public has been open to file comments on each and every version of the market redesign blueprint we've put out. Above and beyond that, the interim CEO of ERCOT, Brad Jones, has been going around the state for the last month, participating in town halls, listening to input from folks around the state. It's been an incredibly transparent process. We take comment at each of our open meetings. And so I'm really, if anything, proud of the way the commission has become more transparent, more open, and engaged more stakeholders than any time in recent memory.
Walsh: There's another piece of the puzzle in addition to the PUC, and that's the Railroad Commission. And a clarifying note for listeners, the Railroad Commission is the state agency that regulates oil and gas, not railroads. A federal report and ERCOT’s own data show that dramatic shortfalls in the natural gas sector were responsible for the bulk of the outages. Natural gas was primarily responsible. The PUC obviously doesn't have a ton of control over that supply chain, but from what you've seen and heard, do you think natural gas will actually show up if we had another severe storm?
Lake: Absolutely. The Railroad Commission made tremendous strides in the new rules they've passed this fall. For the first time ever the largest, biggest volume producers and conveyors of natural gas must be designated as critical infrastructure, so that we know they will have their lights on, they will keep flowing gas…
Dominic: This was a big problem during the storm. Some of these natural gas production plants lost power.
Lake: Yes, and of the many, many, many things that went wrong in the storm, there was a kind of circular, downward spiral. If there's no gas at the power plant, the gas plant loses power, then there's less gas for the power plant, etc. So, that new rule for the Railroad Commission — which was passed in conjunction with PUC staff and leadership — is an absolute sea change in the way natural gas and power interact in this state. It's hard to overstate how big of a reform that is — never happened before in Texas. And the facilities covered in that new rule — that are designated to ensure their lights stay on — cover over 80% of the daily natural gas production in Texas. And on top of that, the Texas Energy Reliability Council is formalized. It's up and running now. So in the even we do get into another crisis situation, for the first time ever members of the PUC, ERCOT, Railroad Commission TxDOT and TCEQ for water supply will be standing shoulder to shoulder in a state operation center, coordinating with their industries, coordinating with folks on the ground… to make sure that all of these elements work together better than they did the last time around which another major change.
Walsh: You mentioned the critical load rule covering more than 80% of the natural gas production in the state. But there's no weatherization standard from the Railroad Commission just yet. Is that a concern? Is that something that needs to be put in place quickly?
Lake: I'll have to defer to the Railroad Commission on the rule-making. But also, the best weatherization is keeping the lights on — whether it's heaters or pumps or anything like that — that's the best weatherization any gas facility can get. And, like, a power plant is a single unit in a single spot. The natural gas ecosystem is a vast array of hundreds of plants, thousands of miles (of pipelines), tens of thousands of leases and wells. And so that's a much more complex system to figure out what needs to be winterized when, so they're running a longer process, as they should. Because remember, having too much critical infrastructure can be a problem as well. If everything's critical, nothing's critical. And so figuring out what truly is part of that natural gas supply chain that needs to be kept on is just as important as having keeping the lights on, and that's the step they've taken. Tremendous strides.
Walsh: And final question on natural gas: In the ERCOT market — for the electricity side that the PUC oversees — there's an Independent Market Monitor who watches for market manipulation, makes sure that people are following the rules. On the natural gas side, there is no Independent Market Monitor. The Railroad Commission, which oversees the industry — there's been some pretty good recording about how they tend to be relatively industry friendly. Does there need to be some sort of stricter regulation or some sort of Market Monitor on the natural gas side to ensure that companies aren't withholding resources inappropriately, similar to the way the Independent Market Monitor oversees the ERCOT market?
Lake: I can tell you all about the power side of the equation. I'll have to leave it up to the experts to make big decisions like that on the gas side.
Walsh: Turning to the question of what will actually happen this winter: ERCOT released something called the seasonal assessment of resource adequacy, or SARA. It basically looks at a range of possible outcomes for the grid along several extreme scenarios. It was striking to me, though, that the range of scenarios released this year didn't even include a situation as bad as last winter. I mean, how is this a serious support on possible extremes if it's not even including the exact extreme situation we saw less than a year ago?
Lake: So that report is built on long term historic data, which it’s designed to be and it should be. And it looks at a wide range of scenarios — not only on the weather condition side, but on the demand side, on the generation side, on generation by type of resource — and so it's far from prediction. It's a series of scenarios. And most importantly, it doesn't incorporate all of the reforms and revisions we've made. It doesn't include the operational changes, doesn't include the margin of safety, doesn't include moving our biggest industrial demand response program ahead of emergency conditions, so those electrons are available sooner rather than later. And most importantly, it doesn't include the winterization regulations that exceed the federal standards. It doesn't include that. It's simple arithmetic of running down plusses and minuses. And so while it's a nice reference piece, it's far from a prediction, and far from comprehensive in terms of incorporating all of the remarkable reforms we've made.
Walsh: A lot of observers, longtime observers, noted that the SARA report came out a little bit later than it usually does this year by a few weeks, and they were also surprised to not see something like last winter included. Why did it come out late, and do you know if — in any earlier versions of this report — if there were any more extreme scenarios that were scrapped?
Lake: We've been really busy. That's why it came out — all of those reforms I've been talking about, they take a lot of time and effort. So it's not been a normal year. I'm sure there were dozens and dozens and dozens of scenarios that fed into this ERCOT report. Thankfully, I don't have to work through all of them. We've got good folks at ERCOT who do a lot of that. It's been a busy year.
Walsh: You and other leaders have projected confidence heading into the winter. The phrase “the lights will stay on” has been said several times at this point. I want to know what your worst case scenario for the winter is, though. Setting aside the optimism and the confidence, what is the worst possible outcome this winter? Are any blackouts even remotely possible?
Lake: The worst case scenario I see this winter is that we have to use almost all of the reforms we made. But we still have that extra margin of safety that we've built in. I hope we don't have to use hardly any of those reforms. Worst case, we use a big chunk of them. But I don't expect to use all of them.
Walsh: And it wouldn't extend to requesting blackouts — rolling blackouts?
Lake: Absolutely not. I do not expect any of those new measures — those mitigation measures, those reforms — to include any form of rolling blackouts.
